CO2 : SHADOW PRICE

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CO2 SHADOW PRICE

• Well defined political target ?
• Not really based on scientific targets
• Policy target, but the rules for implementation
  have not been specified, therefore not a single
  answer.
• Main assumptions
• Real willingness to limit CO2 emissions and to
  meet Kyoto targets.
• This may be questioned, taken into account the
  lack of policy measures implemented so far ?
• We do not take no-regret benefits into account

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COST INFO IN POLICY MAKING PROCESS

• General understanding from EU policy makers
• Emission reductions of CO2 feasible at zero to
  low costs the no-regret benefits (impacts on
  acidificaton, health etc. )

What is the real WTP of policy makers for Kyoto ?
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KYOTO RELATED TARGETS

• 1. Targets for the EU
• 2. Targets for national countries
• a) inside EU part of EU strategy national
  commitments
• b) outside EU e.g. Switzerland

Kyoto is not a single objective, but contains
different perspectives/interpretations
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3 PERSPECTIVES

• a) EU EU-least cost strategy to meet Kyoto
• b) National targets
• from 0 to 100 /tonne CO2 for EU-members
• gt 100 /tonne for CO2 Switzerland
• c) Perspective of the Swiss people, as reflected
  in referenda related to energy issues.

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1. EU perspective

• How to reach EU Kyoto target
• A least cost path to CO2 limitation, as
  identified by technico-economic models
• Range 5,00 20,00 /tonne of CO2
• this is the lower margin.
• EU target shared among the member states (takes
  into account national willingness to pay?) then
  costs of real policy measures are required.

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2. National perspective

• Depend on target agreed by the country costs of
  measures to reach the target
• Wide variation between countries, with much
  higher costs for countries to meet emission
  reduction targets
• e.g. Belgium up to 80,00 /tonne CO2
• Switzerland gt 100,00 /tonne CO2

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2. National perspective (b)

• National perspective does not exclude countries
  to buy emission reductions in other countries
  then, the marginal cost may be much cheaper.
• e.g. a figure of 5-10 /tonne CO2, for emission
  reductions in Russia.

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3. Swiss Referenda

• In several referenda in Switzerland people were
  asked whether or not to agree with a price to be
  paid for increasing renewable energies.
• The answers of these referenda can be
  interpreted as real WTP experiments for energy
  policies and CO2 reductions.

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3. Swiss Referenda (b)

• Main assumptions
• 1. Statistics Normal Distribution of WTP among
  population
• 2. Arguments for renewable energies limiting
  CO2 emissions (although other elements as energy
  depletiona and energy security may play a role

Results From these referenda, a WTP has been
calculated in the order of 5 to 15 /ton CO2,
this is much lower then the abatement costs in
Switzerland of any CO2 reduction target.
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CONCLUSIONS

• At first, it looked easy to identify a CO2 shadow
  price, based on Kyoto.
• As the implementation of Kyoto has not fully been
  decided upon, a single shadow price cannot be
  defined
• The lower range (5-20 /ton CO2) is close to
  range based on Tol, 2000 (2.4-16 /ton CO2)
• Non least-costs and purely national
  Implementation schemes indicate higher numbers,
  up to 100 /ton and more, but with large
  differences between countries.
• Taking into account the difficulties in
  implementing Kyoto, the lower range may even be
  interpreted as an upper range.